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On Our Radar

What's Next For Celgene

Celgene Corp.'s (NASDAQ: CELG) management took to the stage at the annual JP Morgan healthcare conference to outline to industry watchers its plans for the future. The presentation included updates to its financial guidance, and a peek into management's plans for its drug pipeline. Are Celgene's best days ahead of it?

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Image source: Celgene Corp.

New guidance

Over the past five years, Celgene's sales and earnings per share have grown by a compounded 20% and 25% per year, respectively, and based on management's updated financial guidance, that double-digit growth isn't going to end anytime soon.

Management's preliminary look at 2016 leads them to believe final results will reflect 22% growth in sales and 26% growth in earnings per share compared to 2015.

Further, the company's forecasting sales and EPS to grow 18% and 21% in 2017, respectively, and management is holding firm to long-term targets of $21 billion in sales and greater than $13 in earnings per share in 2020. That long-term forecast is particularly encouraging given that pricing pushback has increased recently, and thus growth tailwinds tied to pricing is likely to be far weaker than initially expected.

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Assuming Celgene's able to deliver on its 2020 goal, it will represent compounded top- and bottom-line growth of 17% and 22% per year, respectively.

Getting to its goals

Celgene's path to delivering on its projections includes ongoing volume growth for its top-selling multiple myeloma drugs Revlimid and Pomalyst. Revlimid is the top first- and second-line multiple myeloma therapy, and Celgene's targeting sales of more than $8 billion for it this year. Pomalyst is the leading third-line multiple myeloma therapy, and management thinks its sales will reach $1.6 billion in 2017. Ongoing trials that could expand the addressable market for both of these drugs could provide a lot of the heavy lifting toward Celgene's 2020 target.

Another big driver of growth over the next few years will come from rising demand for Otezla, Celgene's oral psoriasis drug. Otezla's launch has been massively successful so far, and Celgene thinks Otezla sales can eclipse $1.5 billion in 2017. With market share still south of 25% exiting 2016, there's plenty of room for sales to expand over the coming years, too.

Also, a robust pipeline that includes 19 phase 3 trials that are expected to read out data through 2018 should also contribute to Celgene's success.

The studies of ozanimod in multiple sclerosis are very intriguing trials. Celgene paid $7.2 billion in 2015 to acquire ozanimod, an oral tablet that could deliver best-in-class efficacy and safety, and data should be available for investors to digest by mid-year. If the data is good, an FDA filing for approval is expected before the end of 2017. In addition to ozanimod, the company has a full slate of other potential drugs in the pipeline that could move the sales and profit needle.

Image source: Celgene Corp.

A bright future

What may make Celgene so confident in its future could be a patent portfolio that protects its top sellers deep into the 2020s. For instance, Revlimid's patents protect it in the U.S. until 2027, and Otezla's patents protect it until 2024, and possibly until 2028, depending on how a patent expansion attempt pans out.

In the short-term, investors may reward or punish Celgene's shares based on ozanimod's phase 3 outcome this year. However, Celgene can still successfully grow sales and earnings without ozanimod, and its pipeline is packed full of promising therapies that could still move shares higher, regardless of ozanimod's outcome. For that reason, Celgene remains one of the most dynamic and attractive investments in this high-growth industry, and a core holding deserving of a spot in biotech investor's portfolios.

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Todd Campbell owns shares of Celgene. Todd owns E.B. Capital Markets, LLC.E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him onTwitter where he goes by the handle@ebcapitalto see more articles like this.The Motley Fool owns shares of and recommends Celgene. The Motley Fool has a disclosure policy.